Labor Demand Will Bring Forth Supplies of
Workers

H ere's a new-millennium disaster scenario of epic proportions. And the worry is, it might even happen, unless the market system comes to the rescue.

Between now and 2025, the labor force is expected to add only 25 million workers to its current 140.8 million, which comes to a little better than a 0.6% annual rate of growth. To gain perspective, in no decade since 1950 has the labor force expanded by less than 1% per year, and since 1980, the annual rate of increase has accelerated to 1.4%. But gross domestic product has nearly doubled since 1980, and we all hope and expect that GDP will more than double by 2025, which would equate to growth of 3% a year.

Even with fairly generous assumptions for productivity gains, these projections don't compute. But wait, they get a lot worse. This far-below-par increase of 25 million will be accounted for mostly by the immature and the quite mature. Fully 15.2 million will be 55 or older and another 3.2 million will be between 16 and 24. That leaves only 6.6 million from those commonly referred to as "prime-age" 25-54-year-old workers, whose ranks are expected to grow from the current 100 million to 106.6 million. Compare that grim prospect with the fact that virtually all of the labor force increase over the past 20 years was accounted for by those in their prime, a category that soared to 100 million this year from 66.6 million in 1980.

And let's even try to forget that since 1980, we've been working off excess capacity. The 1980 rate of joblessness averaged 7.1%, compared with 4.0% today.

As noted, a prescription for disaster: How in the world can we expect to run the 2025 economy with so few extra hands?

Answer: We won't; we'll just have to bring on more.

Now, "more" is not the sort of word you often hear from the demographers at the Office of Employment Projections at the Bureau of Labor Statistics, the source for these estimates. They prefer to be conservative in their assumptions, a habit of mind in keeping with people in their position. But when I spoke with them recently about the potential feedback effects of worker shortages on projected labor-force growth, they proved to be quite willing to assume that demography is not destiny, and that today's trends are always subject to change.

Some of the echoes of failed forecasting can be found in the chart on this page, which shows the pattern of the past 20 years compared to what's supposedly in store. To begin with, much of it tells the familiar story of the Baby Boomers getting older. In 1980, this huge cohort ranged in age from 16 to 34, which meant that many of them were then too young to be in the labor force.

So any demographer who could add would have easily predicted the huge increase in the number of prime-age workers by 1990 and by 2000. But our expert still would have underestimated the size of the gain, unless he were able to anticipate the rise in labor-force participation rates among Boomer women.

Now notice the decline between 1980 and 1990 in the number of 16-24-year-old workers, from 25.3 million to 22.5 million, a loss that has nothing to do with declining participation rates and everything to do with falling birth rates. In 1980, these younger workers were drawn from the Baby Boomers, while by 1990, they had to come from the generation of the Baby Bust.

The Baby Bust was never supposed to happen. Back in the late 1960s, in fact, demographers were horrified at the prospect of an imminent population explosion, and were confidently predicting it, as Boomer women began to move into childbearing years.

This boom/bust birth pattern is the main reason why the prime age work force, 25-54-year-olds, is barely expected to grow over the next 25 years, and why most of that growth will come from those 55 and older. Today, Boomers are truly in their prime, ranging in age from 36 to 54. But notice that the real slowdown hits as this cohort reaches retirement age; by 2025, they'll be 61-79, leaving the Baby Busters in charge.

Or will they? As I put it to the demographers at BLS, by 2025 we'll need at least 10 million more workers than they were willing to project. And we'll probably have to get them from three main sources: African-American men, immigrants and the Boomers themselves.

In the 1950s, the labor force participation rate of black men was about the same as that of white males, while today it's considerably lower. But why can't that gap close again, as jobs go begging and the welfare-to-work movement hits its stride? We could chalk up an extra million workers as a result.

Okay, nine million to go. So why not import them from abroad? The BLS projects a slight decline in immigration over the next decade from the current annual influx of about 900,000. But it's a big world out there, and even though Europe is beginning to seek out skilled workers from abroad, the U.S. will undoubtedly be first in line.

As a sign of the times, Congress passed a bill last month to significantly increase the number of visas for foreigners who temporarily fill specialized jobs, the result of months of aggressive lobbying by high-tech companies. But how soon will those temporary visas become permanent? And as labor shortages become even more acute across the economy, what other industries might begin to lobby Congress for similar treatment?

Okay, so book four million more by 2025, bringing the total to five million. Next consider the aging Boomer population. The BLS assumes the Boomers will retire from work according to conventional patterns, but as I've argued in past articles ("Retire? Hell No! " March 27, and "Why Retire?" September 6, 1999), this doesn't appear to be what they intend to do at all. And on the demand side, companies plagued by a shortage of workers will start offering them various sweetheart deals (part-time positions; consulting gigs; the chance to telecommute) to induce them to remain.

By my calculations, this should mean 10 million additional Boomers still at work by 2025 than the BLS projects. But I count that as a net contribution of five million, since (let's face it) those Boomers won't be what they used to be. And even those that are might opt to work part-time.

S peaking of BLS estimates, after summarizing October's employment report on Friday morning, Commissioner Katharine G. Abraham dropped the news about substantial upward revisions to the data that are now in the works. As part of the agency's annual "benchmarking" procedure, payroll growth from April 1999 through March 2000 will likely be boosted by about 33,000 jobs per month, which averages to a 13.3% increase from what was originally reported.

But we won't really know the full extent of the changes until next June, by which point the final numbers will be nailed down. And as the commissioner implied, it probably won't be until November of next year that we'll first get advance word of the benchmark revisions in store for payroll estimates from April 2000 through March 2001.

So last week's announcement served as a useful reminder of Keynes' dictum that it's better to be approximately right than precisely wrong. Better to refrain from reading too much into the ups and downs of payroll changes, since what we may think we know is always in danger of being revised away.

But it does seem approximately right that payroll growth is slowing, although it's hard to say by how much. Employment rose by only 137,000 in October, about in line with September, and below the January-August pace. Through the first 10 months of this year, payroll gains averaged 182,000, compared to 224,000 through the first 10 months of 1999. On the other hand, who knows how much of that 42,000 gap might eventually be revised away?

The jobless rate is less prone to revision, and by this measure, the job market has strengthened. October's unemployment rate of 3.9% matched September's, which is the low for this expansion.

Similarly, a strengthening job market usually means accelerating wage gains. Average hourly earnings have risen by a 4.1% annual rate through the first 10 months of this year, up from 3.5% in 1999.

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